Tenants can ask the tenancy deposit scheme to adjudicate if there is a dispute over a protected deposit. However, if the deposit was paid before 1 April 2013 you did not have to protect it. If a dispute arises, your tenants may try to reclaim their deposit money in the Small Claims Court.
Returning a deposit
You may want to inspect the property before your current tenants move out. This will give the tenants an opportunity to fix, repair or replace any items that they have damaged that you have pointed out.
You should try to arrange an inspection of the property on the day the tenants move out or as soon after this date as is possible. Invite the former tenants to attend the inspection. The condition of the property should be judged against its condition when the tenants moved in. You should have a completed inventory and photographs from the beginning of the tenancy. Use these documents when inspecting the property at the end of the tenancy.
You must allow for reasonable wear and tear in assessing the property's condition. Consider how long the tenants have lived in the property and what level of wear and tear would be expected in that time period.
Your tenancy agreement should include a term explaining when the deposit will be returned to the tenant. If it doesn't, all or some of the deposit should be returned to the tenants within 28 days of the tenancy ending. Keep a record of any letter you send to your tenants with the deposit to prove that the money has been returned.
Resolving a dispute
Disputes over security deposits are common. You can only keep some or all of the tenant's deposit if you have suffered actual financial loss as a direct result of your tenant's actions or failure to do something.
You cannot end up better off financially as a result of keeping a tenant's deposit. You cannot, for example, use a tenant's deposit to purchase a brand new table because they have damaged an older table. You can, however, take the cost of the old table from the deposit. It is important to remember that you can only replace "like with like" and that you need to consider the age and condition of the damaged item when retaining any money from the tenant's deposit.
Negotiating with the tenant
Your tenants will contact you if they don't agree with your decision to keep some or all of the deposit. You should respond to the tenants. List each of the deductions and why you feel the tenant is responsible for paying for these items. Enclose receipts for any costs you have incurred to replace or repair items damaged by the tenants. You need to clearly show how you arrived at the replacement or repair costs.
If you replaced items, e.g. a washing machine broken by the tenants, clearly show what percentage of the cost of a new machine you deducted from the tenant's deposit. You need to replace like for like, so you cannot charge the tenants for the full cost of a brand new, luxury model machine if the item that was broken was a 5 year old, budget model. You should charge them a proportionate cost of the current value of the budget model. If the budget model has a lifespan of 10 years, you could charge the tenants half the replacement price.
Small Claims Court action
If your tenants believe you have unfairly kept some or all of their deposit they can take legal action against you through the Small Claims Court. You do not need a solicitor to represent you in the Small Claims Court. If your tenant decides to take action against you in the Small Claims Court, you will be notified by letter.
You can take Small Claims Court action against your tenants if their actions have left you out of pocket and the deposit is not sufficient to cover the losses incurred. It costs between £30 and £100 to lodge a small claims application. The fee depends on the value of your claim.
In court, you will be expected to produce professional records explaining why you are entitled to keep some or all of the deposit or why the tenant owes you money. You will be given an opportunity to put your case to the judge and it will be in your favour to be able to produce detailed documentation and evidence to support your case. If you are unable to produce evidence to support your claim, the judge may rule in the tenant's favour as the burden of proof is often placed on the landlord, as the business person.
If the judge rules in your favour, he may ask the former tenants to pay your application costs. It is unlikely that the judge will order the tenant to pay your solicitor's costs if you choose to instruct one. Where the judge finds in the tenants' favour, you may be ordered to pay their application costs.